I am always looking for "an edge." Just something to get a better chance of winning for my client–like all good litigators. This morning’s post, Chinese Drywall Losses Covered Under First Party Property Insurance Policy, mentioned how going to a NAPIA Conference can give a policyholder’s advocate that type of "edge." Let me explain how a few lessons by Ed Eshoo’s lecture can help everybody making arguments for disputed coverage claims.
First, I am merely paraphrasing the lecture. Order the video from NAPIA to fully appreciate the concepts.
Second, I will be discussing some case law regarding these issues over the next several weeks. Judges, not lecturers, decide what is and is not covered. Real life results and case examples are important.
Still, Eshoo made the following notation in his lecture regarding how the all risk policies work when faced with structural losses allegedly caused by a defective product, such as Chinese drywall:
A resulting loss is covered even if a defective product is a "but for" cause of the loss. The intent of the exclusion and exception is to exclude only that portion of the loss attributable to the defective product. In other words, losses that are defective products are not covered, while those losses that result from the defective product are covered.
The exclusion and exception, read together, operate to eliminate the conduct or defect from consideration in analyzing the cause of resulting damage; only the actual risk causing the resulting physical damage is subject to the coverage analysis.
To the extent that cause is neither excluded nor excepted in the applicable policy, coverage exists for the damage which resulted from the defective product.
This is an excellent phrasing of how the "ensuing loss" provision works. I suggest that others seeking coverage adopt it rather than some of the convoluted discussions by courts.
The factual and legal burden of proof to demonstrate that a loss occurs within the language of an all risk policy was properly described as follows:
An insured seeking to recover under an "all risks" insurance policy merely has the burden of proving only that direct physical loss or damage occurred to covered property while the policy was in force.
Once the insured establishes a loss apparently within the terms of an "all risks" policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excluded.
The insured is not required to disprove any excluded cause of loss.
Exclusion clauses are generally considered contrary to the fundamental protective purpose of insurance. Thus, the courts give a strict interpretation to exclusion clauses, as opposed to the liberal interpretation afforded coverage protections.
I will analyze these principals in greater detail later as they relate to Chinese drywall and how other defective building materials contribute to losses covered under all risk policies. But, the phraseology of the concepts is excellent and should be adopted by all consumer advocates.